Sears Noose Tightens As CIT Leaves Company Cold With No Vendor Financing

Two weeks ago, when we first announced the catastrophic earnings preannouncement by Sears we noted that we were stunned "that as part of its preannouncement, Sears has decided it would be prudent to provide an update on its credit facility status as well as availability. As a reminder to anyone and everyone - there is no more sure way of committing corporate suicide than openly inviting the bear raid which always appears whenever the words "revolving credit facility" and "availability" appear in the same press release. Just recall MF Global. And here, as there, we expect shorting to death to commence in 5...4...3..." Subsequently, when the company was downgraded to triple hooks S&P we said that "Accounts Receivable about to become one big perpetition charge off", the implication naturally being that the company is about to lose its vendor financing - which for retailers is the last step before outright default. Sure enough, the WSJ reports that this is precisely what happened. "Struggling Sears Holdings Corp. suffered another setback when a large lender said it would no longer finance loans to suppliers awaiting payment from the company. Sears representatives played down the decision by CIT Group Inc., the largest U.S. provider of what are known as factoring services for vendors, saying the payables the firm had financed amounted to only about 5% of the retailer's inventory." Basically this means that the company Net Working Capital is about to go poof, as there will be nobody to finance the Receivable-Payable spread, SHLD will have to demand COD or even cash upfront, vendors will balk and switch to other, and slowly Sears will suffer an inventory liquidation stranglehold which will culminate with the company's bankruptcy unless Lampert provides a massive liquidity injection, which also however will have a brief impact, as the company is now perceived by all as Dead Man Walking. In other news, we are hearing that several bankruptcy advisors are already preparing the K-Mart pre-pack/freefall pitchbooks... all over again.

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"We disagree with their action, in fact we'd point out that other factors are approving shipments to Sears Holdings," company spokesman Chris Brathwaite said in a statement.

Nonetheless, the decision highlights growing anxiety among companies doing business with the amalgam of Sears and Kmart stores created by hedge fund financier Edward S. Lampert, which announced that it would be closing up to 120 stores and taking up to $2.4 billion in quarterly charges last month after reporting weak holiday sales.

Representatives for CIT, which sought bankruptcy protection in 2009 amid the height of retailing's struggles during the downturn and emerged from restructuring later that same year, declined to discuss the Sears situation. "We don't comment on specific customers," said spokesman Curt Ritter. Its decision was initially reported by Bloomberg.

Sears has been seeking to reassure investors and business partners in recent days that it remains financially sound. All three major credit-rating firms have downgraded its debt, citing the deterioration of its earnings over the past 12 months, including a $421 million loss last quarter.

Mr. Brathwaite said Wednesday that the company had about $4.2 billion in liquidity at the end of December, including cash balances of about $900 million and $3.3 billion in prearranged credit facilities.

We give sears a few months at best before the liquidity crunch forces it to line up in front of that infamous building at 1 Bowling Green.

Had. Had the best tools on the market. I went in there to try to get replacement garage door opener remote--they wanted $50 for the fucking thing! Disgusting. It's at most a $20 item, and is probably made in China for $3.

Trav said "Sears just wasn't run well despite that they had some really honestly very good products."

That is precisely the issue with Sears/K-Mart. Both brands suffered years ago when the economy was good, because people didn't want to appear to be "poor" by shopping there. But the way the economy has been since 2008, and the way it is going to be in the future, both brands would be doing gang buster business if someone with half a brain and a pittance of retail knowledge had bought them. What has happened to Sears/Kmart is a textbook example of the huge downside of vulture capitalism.

And for those who believe that the commercial real estate owned by Sears is of value, Bwhahaha!!! The FDIC isn't hiring CRE examiners nationwide for shits & giggles.

Sears near us in suburban Philadelphia is a mall anchor and will be closed. Good riddance, as it has been useless for years. Another dinosaur bites the dust, although I agree about the tools. Prehaps the Sears Hardware line of stores will survive. But the suburban mall based anchor will not.

All those who think the CRE holdings of Sears are worth alot of money are dreaming (my prediction). The demise of this store in our local 70s style mall will be one of many coffin nails in the viability of that center, which I predict will revert to its former agricultural use in 10..9..8..

So you think tha malls will go away? I think the space will just sit there forever, abandoned. (And that's on top of all the space already abandoned. Time to short SPG?) Also, thats a lot of space cause every mall in the Phill area has a Sears. I can't think of one that doesn't.

Could it be that eddie lampert actually wanted to drive down the share price as he can buy back a boatload of stocks and bonds at really low prices now? Sears might well go bk but that doesn't mean that the shareholders /bondholders are bound to lose. heck, they could receive a helluva lot of money over the coming years from the liquidation of the company.

I posted this yesterday in a random thread when someone referenced the Hostess bankruptcy... it's more appropriate here...

The game really was the same everywhere. Money is cheap, why not finance ________________ (fill in the blank, be you a potential home owner or a CEO). But the CEO's had no risk. JP Morgan and Goldman Sachs puts together the financing, you buy some top line revenue growth, the bought and paid for analysts hail your growth, stock price goes up in the insane asylum called a market.

Everything works just fine on the way up... but it all REQUIRES infinite growth. Most people won't understand what's happening when the dominoes start to tumble. As the largest American brands go under, all sorts of fingers will be pointed, but at the core is our monetary system that REQUIRES aggregate debt to expand. The system is agnostic with respect to who takes on the debt... consumers via a housing bubble, corporations through leveraged buyouts or governments via some sort of Keynesian fantasy or via the MIC.

Not completely... I did mention that they had no risk. Why should they care if the raid the corporate coffers? Everything is easier to understand when we recognize that finance capitalism is a breeding ground for psychopathology. Our psychopaths are indoctrinated in our business programs and groomed through the ranks to insure a certain perspective when they assume the helm. The degree to which this is orchestrated is open to debate, but the reality of our situation is not. America is run by psychopaths.

They are the product of their environment. They were perfectly sucked in. Paid big cash and able to break laws or ignore the truth, so now they are totally OWNED. Just go out and say, yes the system is corrupt and you will be hammered so hard your head will be blowing out thru your ass.

Honesty will be serverely punished, as corruption has proven to be richly rewarded.

I don't think the system is agnostic about debt at all--when we started to have deflation, the Fed/Treasury/Bush cabal immediately fired up the government debt machine, followed by Obama with the idiotic "putting Americans back to work" to spend it all. I don't think it had anything near the same effect on the real economy as all the housing, auto, and credit card debt does.

Agnostic about WHO takes on the debt. You are absolutely right... when the private sector "tapped out" everything shifted to the public sector. But the aggregate was able to grow. Public, private, corporate and financial... between these four, debt expands or you have a deflationary depression. We've been kicking the can for so long, that we are quite literally suspended in midair... like wile-e-coyete.

One big problem with this article is that it assumes vendors will just up and walk away from bringing their products to Sears. Most of the stuff Sears sells is bought and MADE for Sears by vendors for special pricing. This is NOT the end of the line for them because frankly, those vendors are facing shrinking orders. Retail at Sears isnt retail at JWN or AAPL, these people are affected by the depression and dont have credit cards with which to max out.

In closing, no, vendors will not go anywhere else because there really isnt anywhere else to go. Its not like JCP needs more inventory to sit on.

I dunno . . . our little law firm fucked everyone in open view and we still get vendors eager to take the work. Then they get fucked (wait 12-18 months to get paid depending on how important the Managing Partner thinks they are) but if they don't like it they can stop taking the work. Most hang around.

Sad really. Sold appliances for Sears more than 20 odd years ago - and even back then the bloom was well off the rose. I know nothing of the company now - but back then they owned a huge chunk of real estate via the legacy retail stores (not connected to a mall).

I remember working with some old timers that had put in 40+ years who had grandfathered in health and retirement benefits that set them up for life. A few years later Sears screwed them over and cut the pension payouts to the bone.

I expect to see bruce berkowitz on cnbc this morning, just as in early 2010, to spin his tale about asset values and just think if they turn the retailer around to get another short-squeeze going. Only this time my guess is that he fails!

Seriously though, if they have 900M in cash, how long can they string along before they declare bankrupcy? I see this as a great oppurtunity to buy some puts but it's all about timing of course. Can they limp along another few quarters?

Seriously though, if they have 900M in cash, how long can they string along before they declare bankrupcy? I see this as a great oppurtunity to buy some puts but it's all about timing of course. Can they limp along another few quarters?